Over 100 Kmart, Sears stores to be closed

The retailer gave no timetable for the move and said Tuesday that it has not yet made a final determination of which stores would be closed.

The company also added that more store closures could be upcoming, saying that it would act more decisively with poorly performing store locations.

"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce ongoing expenses, adjust our asset base, and accelerate the transformation of our business model," Lou D'Ambrosio, chief executive officer of Sears Holdings, said in a statement. "These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home."

For the eight weeks ended Dec. 25, same-store sales fell 4.4% at Kmart and 6% at Sears, according to the company. Comparable-store sales also were down 1.8% at Kmart and 3.3% at Sears for the fiscal year to date.

Kmart's quarter-to-date comp-store sales decline reflects decreases in the consumer electronics and apparel categories and lower layaway sales, according to Sears Holdings. Meanwhile, the quarter-to-date dropoff at Sears stems mainly from a poor performance in the consumer electronics and home appliance categories, with more than half of the decline in Sears occurring in consumer electronics, the company noted. Sears' apparel sales were flat, and the Lands End department in Sears stores was up mid-single digits.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) has declined as well, due to lower sales and continued margin pressure, Sears Holdings reported. The company said it expects its fourth-quarter consolidated adjusted EBITDA to be less than half of last year's total of $933 million ($795 million domestically and $138 million in Canada).

As a result, Sears Holdings said that in the fourth quarter it expects to record a noncash charge related to a valuation allowance on certain deferred tax assets of $1.6 billion to $1.8 billion. The company added that it also may recognize in the fourth quarter an impairment charge on some goodwill balances of up to $600 million and that the charges would be noncash and, combined, are estimated at $1.6 billion and $2.4 billion.

Sears Holdings outlined several courses of action, led by the store closings. "We expect these store closures to generate $140 million to $170 million of cash as the net inventory in these stores is sold and we expect to generate additional cash proceeds from the sale or sublease of the related real estate," D'Ambrosio stated. "Further, we intend to optimize the space allocation based on category performance in certain stores. Final determination of the stores to be closed has not yet been made."

The company said it expects to slash its 2012 peak domestic inventory by $300 million from the 2011 level of $10.2 billion at the end of the third quarter due to cost decreases in apparel, tighter buys and a lower inventory position at the beginning of the fiscal year. The retailer also aims to improve gross profit dollars via sharper inventory management and more targeted pricing and promotion, as well as to pare fixed costs by $100 million to $200 million.

"In addition to the specific store closures, we will carefully evaluate store performance going forward and act opportunistically to recognize value from poor-performing stores as circumstances allow," D'Ambrosio added. "While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment. We intend to accentuate our focus and resources to our better-performing stores with the goal of converting their customer experience into a world-class, integrated retail experience."

Sears Holdings stated that it expects the store closing and inventory reduction plan to cut peak inventory in 2012 by $500 million to $580 million and lower its peak borrowing need by $300 million to $350 million in 2012 "from levels that may have resulted in 2012 without such actions." The company said that as of Dec. 23, it had $483 million of borrowings outstanding on its domestic revolving credit facility, leaving it with more than $2.9 billion in available credit.